Financial Winners & Losers: Nat City

Nat City and AIG drew the scrutiny of federal regulators Friday, helping sink financial stocks.
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Financial stocks took a beating on Friday on reports of federal scrutiny at

National City

(NCC)

and

American International Group

(AIG) - Get Report

and weak economic data.

Cleveland-based Nat City plunged to an all-time new low of $4.75 after

The Wall Street Journal

said the bank had agreed to a memorandum of understanding with the OCC. This informal action is taken when the regulator believes a bank needs to take certain steps to stabilize it. The next step would be a cease-and-desist order. More recently, the stock was trading down 8.1% to $4.91.

AIG slipped 6% to $34.22 on news that the Securities Exchange Commission was investigating the company on its valuation of credit default swaps, contracts that insure against defaulted debt. The

Journal

said that the SEC was looking into whether the insurance giant had overstated the value of contracts such as credit default swaps backed by subprime mortgages.

Financial stocks also suffered from a dismal jobs report, as the Labor Department said that unemployment had reached 5.5% -- the biggest monthly rise since 1986. The

NYSE

Financial Sector Index declined 260.65 to 7,053.05, a loss of 3.6%.

Also hitting 52-week lows on Friday were banking giants

Washington Mutual

(WM) - Get Report

and

Wachovia

(WB) - Get Report

. Both raised capital in April and both have been subject to negative reports by analysts. Concerns over troubled loans and earnings going forward, coupled with active regulators sent the stocks tumbling. WaMu tanked 13.5% to $7.45 and Wachovia slid 6.6% to $20.17.

After the market closed on Thursday,

Bank of America

(BAC) - Get Report

received approval from the

Federal Reserve

for the acquisition of

Countrywide Financial

(CFC)

. Mortgage lender Countrywide was hit hard by the mortgage meltdown and BofA stepped up to buy the company, but concerns have arisen of late that the deal may not go through under its present terms. BofA shares slipped 3.5% to $30.86. Countrywide was only losing 2.5% $5.16.

Lehman Brothers

(LEH)

was losing 31 cents to $33.54 after

The New York Post

suggested the investment firm may report its earnings early as it tries to convince investors that it is a stable company. Lehman has been the target of hedge fund manager David Einhorn, who has a short position on the stock. Einhorn has laid bare the weaknesses of the investment house, while Lehman fights off the negative statements.

Birmingham, Ala.-based

Regions Financial

(RF) - Get Report

became the proud owner of 83 properties in Iowa after a builder defaulted on the loan. The bank's stock slipped 6.6% to $15.45, as bad news in the real estate sector continues to build.

After the market's close on Thursday,

Standard & Poor's

cut bond insurers

MBIA

(MBI) - Get Report

and

Ambac

(ABK)

to a double-A rating. Investors are concerned that the companies will not be able to attract business as a result of the downgrades to their once pristine credit and shares of both sold off on Friday. MBIA fell 8.9% to $5.50 and Ambac was giving back 8.8% to trade at $2.39.